department of defense agency financial report fiscal year 2012

Department of Defense Agency Financial Report for FY 2012
services are performed, thus leaving the Department vulnerable to increased fraud,
waste, abuse and misuse of taxpayer monies.
The Department continues to face challenges in obtaining fair and reasonable prices for
parts. Audits first started identifying problems with price-based acquisition and
commercial pricing back in the late 1990's, and it was not until 2008 that legislative
changes allowed contracting officers to request information on labor costs, material
costs, and overhead rates for commercial items.
More recently, the Department has moved to new performance-based logistics (PBL) or
contractor logistics support (CLS) arrangements that have added a new challenge to
obtaining fair and reasonable prices for parts, since the Services are now going back to
the weapons systems contractors instead of other available sources to procure the
parts. Normally, the Services would procure the parts from the Defense Logistics Agency
which in turn would procure the parts from the original equipment manufacturer, not the
weapons systems contractors. Paying excessive prices for parts procured from the
weapons systems contractors that did not manufacture the items was reported back in
the 1980's and resulted in the spare parts breakout initiative. Unfortunately, future
budget constraints made breakout and cost/price analysis groups targets for workforce
reductions. The Department also faces challenges in effectively using existing
Government inventories of spare parts before procuring the same parts from private
contractors through these PBL or CLS arrangements.
2-3B. Contract Management IG Assessment of Progress
The Department continues to make efforts to strengthen contracting and has issued
policy, procedures, and guidance addressing current contracting challenges. The
Department began the Better Buying Power Initiative in 2010 and continues to
implement this initiative to improve the way the Department acquires goods and
services. In April 2011, the previous USD(AT&L) amplified the focus of the better buying
power memorandum to maximize competition in situations where only one offer is
received in a procurement utilizing competitive procedures. In his October 2011 initial
guidance memorandum, the USD(AT&L) emphasized his commitment to improving
efficiency through the Better Buying Power initiative, which he stated they will continue
to refine and build upon to reduce costs and provide the highest possible value to the
warfighter. The Department has also emphasized “affordability” in review of acquisition
efforts and using peer review to improve quality of contracting processes across the
Department.
The USD(AT&L) required each Military Department and Defense Component to establish
a senior manager for the acquisition of services, who would be responsible for the
planning and execution of service contracts. The Department has also organized the
procurement of services into six categories in order to make decisions, share lessons
learned, and institutionalize strategic sourcing.
In response to audits relating to PBL and CLS strategies, the USD(AT&L) for Logistics
and Materiel Readiness issued guidance that created a standard practice of using
existing on-hand and due-in government inventory. The guidance also stated that in
these arrangements, stocking objectives should be adjusted accordingly when using
commercial sources. Further, senior leadership directed that components should perform
cost and price analysis on a sample of spare parts before exercising options.
A-12
Addendum A